Decoding 7th Pay Commission order; check out the money talk and the deferred part

July 5, 2016

Decoding 7th Pay Commission order; check out the money talk and the deferred part

The 7th Pay Commission windfall for sarkari babus has a lot of ifs and buts attached to it, not to mention innumerable slabs and a plethora of other parameters, thereby confusing the beneficiaries. We take this opportunity to cut through to the real meat in the report that was cleared by the Narendra Modi government last week. Here are the top 5 key takeaways.

1. 7th Pay Commission stimulus to private consumption would be some Rs 46,800 crore, or 30 basis points (bps) of GDP, according to an analysis done by Kotak Economic Research. The government will get an additional tax revenue of Rs 13,000 crore and households would be able to save Rs 25,000 crore.

2. On the 7th Pay Commission, the government will be spending an additional Rs 84,900 crore on pay and pensions in FY17. Of this, the Union Budget will bear Rs 60,600 crore, while the Indian Railways will bear Rs 24,300 crore.

3. A major difference between the 7th Pay Commission and previous pay commissions is that there is hardly any lag between the time of recommendation and implementation. As a result, the size of the arrears to be paid will be much lower compared to the payouts of the Fifth and Sixth Pay Commissions.

4. Now that the central government has accepted the report of the Central Pay Commission, state governments will follow suit after a gap of six months to a year. States are likely to increase expenditure by 1.5% of GDP towards salaries and pension, which would further stimulate private consumption over the next couple of years.

5. As far as the deferred part is concerned, in the 7th Pay Commission order, government has deferred the allowances for another four months, which would be implemented prospectively. However, that is not expected to stand in the way of spending splurge, because an increase in private spending post 7th Pay Commission windfall is expected to push up demand for consumer durables and automobiles.